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Monday, April 21, 2008

Chrysler looking to Make Cars in China

Chrysler LLC is discussing joint ventures with a number of potential Chinese partners, including Chery Automobile, in a bid to return to producing vehicles at its own plants in China, executives said on Sunday.

The company aims to become one of the top 10 competitors in the industry's biggest boom market, they said.

"We're having discussions with several potential partners. Those discussions are ongoing," said Phil Murtaugh, who became chief executive of Chrysler's Asian operations last year.

Chrysler representatives also said the privately held No. 3 U.S. automaker was still working with Chery to modify one of its small cars so that it could be ready for export from China.

Murtaugh declined to specify a timeframe for concluding that work and clearing the way for what had been expected to become one of the first Chinese-made cars to be sold in large volumes in developed markets such as the United States.

"I don't think we're too far away, but neither of us is ready to say let's go yet," said Murtaugh, speaking to reporters on the sidelines of the Beijing Auto Show. "We're working to make sure the product's right."

Chrysler announced a tie-up with Chery last year as part of a bid to reduce its reliance on trucks and SUVs by giving it a subcompact car to sell under one of its own brands.

But when progress in readying the Chery-built vehicle stalled, Chrysler turned to Nissan Motor Co, and this month announced a production swap under which Nissan will build a subcompact in Japan using a Chrysler design starting in 2010.

Murtaugh said that Chrysler and Chery were reviewing safety-related issues such as body structure in order to ensure that the resulting China-built vehicle could be marketed successfully overseas.

"Safety is a huge challenge because of the size of the car," said Murtaugh, who joined Chrysler from SAIC Motor Corp, China's largest automaker and a joint-venture partner with General Motors Corp

Murtaugh said that the engineering work needed to ready the new small car was substantial but stopped short of a wholesale re-design. "We don't have to re-engineer the whole car," he said.

For its part, Chrysler sells a total of 12 models in China but only four of those are locally manufactured through joint ventures now managed by Daimler AG, which sold Chrysler to Cerberus Capital Management last August.

The Chrysler 300C sedan, two minivan models and a version of the Chrysler Sebring -- rebadged in China as the Borui -- are all locally manufactured in China. The rest of Chrysler's line-up, which is sold through a network of about 110 dealers, is imported to China, a step that drives prices higher in a market where vehicle prices are falling.

Murtaugh said Chrysler's high import ratio would have to change if the automaker was to realize its ambition of becoming one of the top 10 competitors in the Chinese market, now the world's second largest and widely seen as on track to become the largest over the next decade.

DOUBLE-DIGIT GROWTH

Murtaugh said he expected China's auto market would grow by between 15 percent and 20 percent this year. "We have to grow faster if we want to hit (the) top 10," he said.

Chrysler has made it a priority to increase the number of its dealers in China and to allow all of them to represent all three of its brands -- a step it is also taking in the slumping North American market, which still accounts for some 90 percent of its overall sales.

Separately, Murtaugh said Chrysler was looking to source "a lot" more components from China for cars sold around the world. Chrysler, he said, currently ships less than $1 billion in components from China out of a total procurement bill of between $25 billion and $35 billion.

He also said he was standing by a forecast that Chinese automakers would not be ready to export to the United States until sometime between 2010 and 2012.

Chrysler, which lost $1.6 billion in 2007, is counting on diversifying by selling into faster-growing emerging markets as part of a turnaround under which it has slashed production and jobs in the United States. The automaker has trailed its larger U.S. rivals Ford Motor Co and General Motors in establishing joint-venture production deals with Chinese auto partners.

Chrysler's Jeep brand had been in the first wave of such deals. AMC, which Chrysler later acquired, reached a deal in 1983 to build Jeeps in China with Beijing Automotive Works. That partnership was disbanded in 2003.